Defense Metals' Mark Tory on Wicheeda's Hydromet Pilot, Federal Grants, and Chasing a Re-Rating Catalyst in Rare Earths

0:15Welcome back to Mining Stock Daily. Ian Wagner here with a follow-up conversation with a Canadian rare earth developer, Defense Metals, based in Vancouver, part of the Discovery Group. Defense Metals is advancing the 100 % owned Wachita Rare Earth Project near Prince George, British Columbia, one of the only 43-101 reserve stage REE deposits in North America. Defense Metals trades on the TSX Venture under the symbol DEFN. And with us today is the president and CEO of Defense Metals, Mr. Mark Torrey. Mark, thanks for coming back. Good to see you. Welcome back to the podcast. Yeah, thanks, Ian. Thanks for having us back again.

0:55Yeah, absolutely. A lot has happened. We spoke in April. So anyone new to the story, I just encouraged to go back and listen to our previous episode. But a lot has happened since April. Kind of walk us through where Wachita stands today, what you guys are doing, what you're focused on. Yeah, look, since April, we've completed both a winter and a spring program up on site. the winter program included some drilling that we had up there for geotechnical drilling which was complete then and then then we had the spring program that we completed recently where we were doing some infill drilling to look at increasing our resources to increase our mine life from our from our pfs as well as some more geotech drilling and at the same time obviously we're continuing to do some additional work in relation to our environmental baseline studies and making sure that we've got all the work we need for all of that.

1:55On top of that, we also did a 30-tonne pilot plant on our beneficiation side at SGS in Lakefield, just out of Toronto. That was a five, six-week program that we did to process that. And the reason to do that, It's twofold. One was to make sure that our flow sheet in relation to the concentration, I was able to upgrade and go at higher levels in relation to scale. And then secondly was to produce enough concentrate for us to then go into a hydrometallurgical pilot plant, which we will be starting shortly. Yeah, I'm glad you touched on that first. The PFS, I mean, mentioned we should, you know, mention, obviously, you guys are at past that PFS stage, 15 year production plan.

2:52You know, some numbers around that, I think a pre-tax NPV at an 8 % was around$1.8 billion Canadian post tax about$1 billion Canadian with post tax IRR 18.9 % post tax payback 3.7 years. a decent capex, right? A little over a billion, 1.4 billion. Within the context of where you guys are at in the stage, talk about that HydroMet program and the pilot and really what that is designed to accomplish and how that moves Wichita forward. Certainly. One of the things with the PFS was the product that we were going to produce. So in the PFS, we were producing what's called an MREC product, which was basically a carbonate which had all of the rare earths in it, where we would then have to sell it to a separator.

3:46What we're doing through our full feasibility study is looking to build our own separation facility, whereby we would actually produce an NDPR magnet grade oxide and then a SEG, which is the heavies combined together to sell that to a separator. So the test work that we're going to be doing now through the HydroMet will allow us to test that process and make sure that we're going to be able to do separation as well. okay so what do you what does that do for you in terms of like your your your customer and your revenue is that increased revenue increased product offering like what is that is there a premium placed on that oxide like what why does that matter so so significantly yeah it's not a it's not it's not necessarily a premium placed on on the product but what it is is you get 100 payability rather than a you know 90 payability or 95 payability on the on the product that you are actually producing so so yes it's more revenue but obviously slightly more increased costs and an increase in in the capital but what it does is it really expands your market base um so instead of trying to find a separator globally that's going to be able to to take you know 5 000 tons of ndpr which is you know which which is difficult there's not many of those you know globally um we actually do our own separation and then with an oxide that oxide market is to um to metal makers alloy makers magnet makers so so that whole uh base has just expanded you know x-fold yeah you've certainly seen a lot in the news news flow this year about about the importance of magnets and just sort of that rarer supply chain you know not only here where i am in nor in the united states but certainly globally.

5:40Okay. So kind of moving to some of those assumptions in that PFS and, and just, you know, with that, with that CapEx, what is the plan there for raising that? I know you guys, and this is probably a good segue into, you know, your government, government relations, right. And you guys being able to submit the, your project to the, to natural resources, Canada, you know is this something where you see it as a combined debt equity government financing how creative can you get and just kind of what what does that look like or what could it look like oh there's so many different scenarios that you can put out there in um and and it could be you know a combination of everything we've already got a 250 million dollar um you know letter of interest from edc so export development bank of canada which we signed last year but we would see you know the financing of the actual construction of the project to be a combination of as you said you know debt equity government funding and you know that government funding you know it could could be you know canadian government funding could be european government funding could be U.S.

6:56government funding. But yeah, we'd be looking to finance it in that way. I don't think you can do it any other way besides having a combination of the three. So with that, I mean, what are those conversations like with the government there? And I know that in years past, you guys were kind of earmarked as a, I'm not going to get the term right, but just a significant project within the BC government, right? Maybe you can clarify what the term is. But what are those conversations like and then how do you kind of advance this forward with them? Yeah, look, you know, when we talk funding and looking at the construction of the project, we're looking at the federal government rather than BC.

7:44BC, when we're on that list of, you know, from the critical minerals office of the four companies that are going to progress the permitting side. So that's really for us to have a concierge service to assist us going through all the relevant government services there are there for us to make sure we can get the permit done in a very timely fashion and without cutting any of the corners and without obviously continuing to keep the community involved with it. the communications with the federal government are great as well like we're we're quite high up on their list in relation to a strategic projects in Canada you know we know that you know we put a couple of applications in I know we made an announcement the other day where we had a put an application in for a 32 million dollar grant with the federal government it was an expression of interest from us it went through a process within the Canadian government went through some experts etc and it's moved to the next step which is for us to fill out a full application so I mean there's no guarantee of funding or anything like that at this point in time but it's certainly a very positive step towards you know moving towards that and now going through the detailed application process with the government itself.

9:12So, um, and look, and when we're talking to people in relation to the financing, you know, in various government departments, we know there's buckets of money that are there for construction of projects like ours. So, you know, we, we really feel firmly that, um, when we get to the construction phase, there will be funds available for us. Do you feel like what you guys, that your separator still is that you have, you know, proven improbable reserves and that you guys are the sort of furthest along in this, or is it something else, jobs created? What do you feel like is your differentiator that you can kind of put on those highlights or sort of when you're talking to people, either government or private investors or whatnot, to say, hey, this is why our project should be at the front of the list?

10:01Yeah, well, there's two parts. One, we've demonstrated the economics around it. And the main reason, again, for that, one, you say, yes we've got the reserves the reason we've got the reserves is because of the economics and the economics really revolve around the fact that you know we can concentrate up our grade from the ground from 2.4 percent up to a 50 concentrate grade so that's that's our big differentiator between us and and other projects um certainly when we talk to government you know we're talking about trying to partner with the right strategic partners downstream um in relation to you know separation, alloy making, magnet making, etc.

10:43So that there's excitement built within the government to see if we can get downstream processing happening within Canada. And even if it's not within Canada, it's associated with Canada. You had mentioned when we spoke, I think in April, one of the things that you were looking forward to the rest of the year was working for those strategic partners or offtake agreements. You have, correct me if I'm wrong, I think a non-binding agreement with a company out of South Korea or perhaps an exploration joint partnership. Give us kind of the state of affairs in terms of offtakes. Is that something where you're looking to, well, I guess it's a two-parter.

11:26I mean, give us sort of the current landscape, but then also, is there a minimum threshold you're looking to sort of secure for offtake or is it kind of, you know um whatever you need to do in order to sort of secure senior debt or you know how are you thinking about that how do you guys like kind of yeah i guess just thinking about that well i guess since the last time we spoke we signed an mou with hanwa corporation and hanwa ocean now hanwa was a company that um was involved in a two-way um contract negotiation with the Canadian government to build submarines. And obviously part of that whole deal was to look at doing business with Canadian companies.

12:10Unfortunately, about a month ago, I think the Canadian government chose the German company rather than Hanwha. But on the same day, I got an email from Hanwha, which said, even though we weren't successful, we still want to continue, you know, the MOU because we do want to look at, you know, offtake, financing, et cetera, in relation to Rare Earth. So that was still very positive. We obviously have the MOU with an unnamed European party in relation to offtake from the PFS. Now, given the fact that we're going to be changing our end product, um you know that you know we obviously won't be looking at you know that product going through that an offtake through that mou but we're certainly looking at other options that we can do with that party um moving forward when i look at strategic partners and the way that we're doing it at the moment we're looking at it probably from three different aspects so one as you mentioned is offtake and when you when we're looking at offtake you know we don't have any minimums or maximums etc that we've got here um you know a lot of it come will come down to you know what is you know the the market and you know the player that we're dealing with how much do they need sure and you know generally i mean we're talking about 5 000 tons of ndpr you know you'd be looking at you know having trying to have a cornerstone of at least you know two million you know

13:50roughly of product, you know, going there, at least 25%, 30 % of it, right, that you can have as one on the side. So that's one side of it. The second side is, you know, strategic in relation to helping us out on the technical side of things. So, you know, whether that be downstream or, you know, helping us with the Hydromed, et cetera. And then thirdly, the way that I look at it is government. And so when we look at government as a strategic partner in relation to funding, potential offtakes, potential stockpiling, there's a whole lot of different things that we're talking in relation to that.

14:34okay um yeah that brings up a question i probably should have asked earlier but how much you know without asking you to make any you know forward-looking statements how much do you expect the you know as you move from the pfs to a definitive feasibility study how much do you expect the economics around the project to change now that you are going to be um using the hydromet separation you know yeah again we haven't done you know we've done some high level numbers in relation to it you know we're also looking to see you know where we can potentially you know shave shave costs off the capital as well so it's obviously to reduce the capital costs you know moving forward so yeah look I don't think we'll see, you know, a substantial change, but, you know, hopefully we're moving towards a more positive, you know, a more positive outcome.

15:38Okay. Okay. And then that's what, that's what we all click towards, right? Yeah. Yeah. I mean, obviously I'm like this, you know, you, you go through the process of doing the hydromet you want in this operation and you want, you, you want to know kind of what, how, where that's paying off. Um, I wanted to ask you about the price of NDPR. You know, when we, I think it's pulled back to around a hundred dollars a kilogram, we had spoke around how the U S department of defense price floor had kind of affected the rest of the market. Is that still the case you guys are using? I think that 130 ish, 132 in your, in your numbers internally, what are you seeing out there?

16:20Are you any, I don't know, concerns, not maybe isn't the right word, but just what are you seeing on the pricing standpoint of, of NDPR? Yeah, not, not, not concerns. Um, I mean, you're right about that, that floor price and, you know, I think, you know, any substantial contracts that, that, you know, will be signed these days are going to, going to have that sort of floor price in it just to make sure that, you know, it's going to be surety of supply for, for the market that they want. So they want to make sure that the company they're getting it from is able to maintain supply. My personal opinion of NDPR prices is, you know, they should be around the$150 mark is my view.

17:07You still see, you know, companies like Atomos, Benchmark, et cetera, you know, when you're looking into the 2030s when we're, you know, looking to be in production. you know they're certainly you know in those levels um with the demand supply um analysis that they do um and they see you know big movements in in particular in robotics um which is which is where a lot of the magnets are being used and and there was um there was an interesting instagram the other day which we're trying to get up on our um, on our Instagram for defense in relation to, you know, Donald Trump talking about, um, robotics and, um, how, how rare earths are going to be important in moving forward in it.

17:52So yeah, it's, it, it's important. It's very important. Okay. and, and pricing. Yeah. As I said, we worry about what the pricing is going to be in four or five years time. Um, you know, I, I just can't see it. Um, you know falling dramatically again and the interesting thing is that we're starting to see you know these companies actually do pricing mechanisms that are outside of china which is something i've been talking about for over 10 years in in rare earths and we're seeing it now we're seeing it we're seeing a european um index we're seeing a us index and we're seeing the chinese index so um you know i'm glad that we're seeing seeing the truth and the there is a definite difference between the Chinese and the U S and the European.

18:40Yeah. I'm glad you brought that. I was going to ask you about what, what you're seeing there in terms of the difference and how, you know, one thing I do think it's, it is a little different for people to know what the NDPR price is or rare earth prices, right. It's a little more opaque than just going on, you know, investing.com and seeing gold and silver or nickel even, you know, right it's just it's it's it is a little uh um not as widely quoted widely followed and it can be a little confusing in terms of if you're not inside the the market so um yeah and then it's written and really you have to pay to for the subscriptions to get those those those prices so yeah you know general joe blow in the public it finds it really difficult to to to track it unfortunately.

19:25Yeah, for sure. Well, listen, other, other price I want to ask you about, your share price has come off since we spoke in April. Talk about either any thoughts on that or why or concerns you're getting from investors, or is it just that, hey, people don't, maybe people don't know, or they just aren't understanding the project or what do you, what do you think that might be? I know you put out, you wrote a letter to shareholders and and investors and why do you want to do that and what what do you want to communicate yeah it's you know for us i mean the general market in relation to rare earths has has been has been soft um over the last few months um and you know when we're looking at ourselves compared to some of our peers in the in the rare earth industry um you know we haven't done so well and i not you know one of the reasons for that is when you have a look at it each of those other companies had some sort of a catalyst event that has been able to push their share price.

20:27So whether it's some government support, whether it's a strategic investor coming in, something along those lines. Now, as we've just talked about here, you know, we're working really hard towards getting that. Well, you know, I don't think we're very far away from it. But, you know, we haven't announced it. And I think the market itself has been expecting us to have announced something, already, whether it be government, whether it be strategic partner, etc. I was a bit disappointed. Our announcement that we made in relation to the$30 million grant wasn't received as well as what I thought it might have been.

21:08Maybe people don't quite understand. And maybe they thought we were more progressed or more advanced in relation to discussions with the government. But, you know, everything we're doing is working towards our goals that we're continuing to say. We keep, you know, we keep hitting goals and we keep doing everything that we've said we're going to do. I would like, obviously, to have been able to announce something on strategic partners or government, you know, a lot sooner. But I'm also very confident that we'll have something before the end of the year. All right. Well, yeah. Before I let you go, I did want to ask you about your chairman, Guy Descelliers.

21:46um a real heavy hitter in the mining space 20 plus years on Solveig's board um you know he's probably someone who could be the chairman of almost any junior mining company or maybe any of global mining companies just um what does sort of having him on the board say about you guys and your project and kind of how does he lend his expertise when you guys are going through these you know big high-level strategic conversations well as you say you look at his background i mean he's got so many connections um you know in the finance world um at very high levels and now of people that are now you know heading up you know places like uh edc and and you know other european you know government institutions etc as well as relevant corporations so whenever whenever Guy wants to have a talk to someone with a potential strategic partner that we have generally he knows somebody that's at the very very high levels within those companies that he's able to to send an email to and try and get in front of so I mean he's been extremely important you know in advancing a number of the things that we're doing on the strategic front.

23:14And it's great to have him there. I mean, his company that he also had built up, HCF Corporate Finance, you know, they invested in Arafura in Australia. So that's where he started having a look at some rare earths outside of Solvay. And then he got asked to be on the board of Defence. And, you know, so we're very lucky that he accepted that position and he's on board. And we're certainly utilizing all of his skills, experience and networks to advance our strategic negotiations as we move forward. All right. Well, I think we're going to have to leave it there for today, Mark. But I appreciate you coming by and giving us an update on everything.

24:02I think we covered the big ticket items. really appreciate you giving everybody an update on Wachita and where you guys are at and what you're doing and we'll look to catch up with you again in the future Excellent, thanks very much Ian love to talk about it as you know so appreciate you having me Yeah, absolutely Defense Metals trades on the TSX venture under the symbol DEFN and that was Mr. Mark Torrey, President and CEO of Defense Metals

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